Two Countdown stores sell for $44m as investors seek defensive assets

Wednesday, 26 August 2020

Shoppers emptied shelves at Countdown supermarket in Moorhouse Avenue, Christchurch, as alert level 1 lockdown loomed. Countdown sales were much higher in the first half of 2020 than in the same period in 2019.

Two large Countdown supermarkets have fetched more than $44 million as investors seek defensive investments that beat bank term deposits in the midst of the pandemic.

Countdown’s parent, Woolworths New Zealand, placed the two supermarkets, Countdown in Orewa, north of Auckland, and Countdown in Papakowhai, Porirua, up for sale during alert level 1 attracting multiple bids.

Countdown is leasing the supermarkets back off the new owner, an Auckland investor, who paid $44.35m for the two. They were offered for sale individually or together, and attracted several tenders, Bayleys Realty, marketing the properties said.

Countdown in Papakowhai, Porirua, was developed fairly recently by Woolworths New Zealand and opened in 2017.

With rental income of $2.2m a year the supermarkets are returning almost 5 per cent. Their tenants, essential businesses, are seen as safer bets by investors in commercial property in the midst of a pandemic that has seen supermarkets run out of certain items at times in the past few months.

*Coronavirus: supermarket spending up 60 per cent in preparation for lockdown

Ryan Johnson, Bayleys national director for commercial, says Covid-19 has ramped up interest in commercial properties like supermarkets and other defensive assets like healthcare buildings and large format retail stores.

Countdown’s owner, Woolworths New Zealand, the country's second largest grocery business behind Foodstuffs, has done well in the past few months, notching up double digit rises in New Zealand food sales in the first half of 2020.

New Zealand food sales rose 13.7 per cent January through March, compared to the same months the year before, and in April to mid-June, New Zealand food sales were 15.1 per cent higher than the year before Woolworths Group said in a trading update to the Australian Stock Exchange in late June.

National director of commercial at Bayleys, Ryan Johnson, said investors recognised the value of non-discretionary retail assets such as supermarkets especially when bank returns were low.

Woolworths New Zealand head of property Matthew Grainger says the proceeds from the two supermarket sales will go towards the company’s development plans. Pictured is Countdown in Orewa, north of Auckland.

“If anything the Covid-19 scenario served to increase the amount of interest we received for these properties,” Johnson said. Covid underlined their essential service nature and ramped up interest in them to a new level.

Investors from private individuals to family trusts, property syndications to listed companies, were focusing on defensive assets like supermarkets, healthcare and large format retail where people buy non-discretionary and everyday items.

Auckland investors, in particular, were looking for assets through the country as they became harder to find closer to home.

Woolworths New Zealand’s head of property Matthew Grainger said that they were pleased with the result, and will re-invest the proceeds to fund the company’s considerable development plans.

“We have a significant property development pipeline over the coming years, and the result of this sale highlights that the market is keen to invest in supermarket properties.”

In December last year the Overseas Investment Office (OIO) granted two of its subsidiaries “standing consent' to buy up to 75 hectares of residential land for supermarkets and other facilities that support its operations in New Zealand and to complete up to 10 transactions before the consent expired on December 1, 2022.

In January 2020 it received OIO approval to buy residential land for a supermarket development in Lincoln, south of Christchurch.

Woolworths New Zealand owns and operates more than 180 Countdown stores in New Zealand with 18,500 people employed in its store network, administration offices, processing plants and distribution centres.